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Gift Aid is a scheme that allows charities to increase the value of donations, by reclaiming the basic rate income tax that has already been paid on that money. The tax is reclaimed by the charity directly from HMRC. The basic rate of income tax is currently 20%. Therefore every £0.80 donated received is equivalent to £1, because the donation is treated as £1 before deduction of 20% tax. For basic rate tax payers this means that for every £1 you donate to charity under the Gift Aid scheme, the charity receives approximately £1.25. It is important to understand the benefits of the Gift Aid scheme to make sure that charities can receive the maximum donation possible. It also ensures that any person making a charitable donation through the Gift Aid scheme is using any tax relief available.
To find out more about Gift Aid tax relief please follow the links below:
Gift Aid only applies to cash donations, although if you operate a charity you can often claim tax back on the value of donated goods. A Gift Aid claim for tax relief only applies to individuals, it cannot be claimed on donations made by companies, although in these cases Corporation Tax relief may apply.
A Gift Aid claim is allowable for any EU, UK, Icelandic or Norwegian charity if they are registered with HMRC.
If you pay higher rate income tax on your UK earnings you can also claim back the tax you have paid on any part of these higher rate earnings that you donate to charity. If you make a charitable donation under the Gift Aid scheme you are eligible for tax relief on any tax higher than the basic rate. This means that if you pay 40% tax you can receive 20% tax relief on charitable donations, up to the amount on which you are paying higher rate tax. In practice this means that for every £1 you pay, the charity receives £1.25 and you can reclaim £0.25. Similarly, if you pay 50% tax you can currently receive 30% tax relief on charitable donations.
There are slightly different rates for donations made before April 2008. However, you cannot usually backdate a Gift Aid claim for more than two years.
To receive the benefits of the Gift Aid scheme you need to make a Gift Aid claim by completing a simple declaration for every different charity that you donate to each tax year. If you are a higher rate taxpayer and complete a Self Assessment Tax Return, you will also need to declare all your charitable donations on your Self Assessment tax return.
The charity you have donated too can provide you with a Gift Aid declaration form. There is no existing official Gift Aid form and therefore the charity you have donated too is the best contact to obtain the Gift Aid form.
It is possible to provide an Oral declaration as long as specific protocol is followed by the Charity.
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